Voices on the left have been calling for a Green New Deal as a radical way of transforming the economy in order to tackle a confluence of crises: environmental, social and economic. It takes its name from FDR’s efforts to overcome the Great Depression in the US during the 1930s.
Yeva Nersisyan and L. Randall Wray, both proponents of Modern Money (or Monetary) Theory (MMT) have produced a short paper published by the Levy Institute in which they attempt to answer the question posed in its title: Can We Afford the Green New Deal?
The GND itself could include a “carbon-neutral energy policy and reversing climate change; universal single-payer healthcare; student debt relief and free public college; prison reform; ending “forever wars”; increasing care for the young, sick, and old; and the job guarantee.”
Employing their MMT framework, they argue that “there are no meaningful financial barriers to taking action”, rather “the question is whether sufficient real resources – workers, plant and equipment, raw materials – can be marshaled to implement” it. They draw inspiration from John Maynard Keynes’ 1940 work How to Pay for the War, making the case that the main barrier to such an ambitious government programme of public spending is inflation fueled by excessive aggregate demand, which can if necessary be curtailed by raising taxes or, should this prove insufficient, by other measures used in wartime such as price controls and rationing.
Nersisyan and Wray state that “excessive spending…creates problems not in terms of higher government deficits and debt, but in terms of true inflation” and that “taxes are used not to finance government spending, but to withdraw demand from the economy, creating space for government spending to move resources to the public sector without causing inflation.” Continue reading